GBP/EUR X-Rate Has Filled Gap, Likely to Go Higher in Week Ahead

The GBP/EUR exchange rate has filled the gap formed at the start of last week after the Euro rose following the results of the first round of the French presidential election.

At the start of the new week the conversion is quoted at 1.1864 on the spot markets with bank transfers being quoted in the region of 1.1537-1.1454  and independent providers quoting in the region of 1.1679-1.1762.

Our technical studies of the pair suggests Sterling is likely to be favoured in the near-term.

The exchange rate is now expected to continue higher as it fulfills the target generated by the breakout from the triangle pattern which formed after the establishment of the October lows.

We calculated the target at 1.2260 based on the height of the triangle at its widest point multiplied by 0.618 which is the ‘Golden Mean’, an important mathematical ratio which explains patterns in nature and, according to some technical analysts, financial markets.

Whilst subject to interpretation, we have taken the height of the triangle as the space from ‘a’ to ‘b’, and this multiplied by the Golden Mean roughly gives a target at 1.2260, however, we have adjusted this target down to the level of the R2 monthly pivot at 1.2220, as the pivot is likely to cap upside either temporarily or longer-term.

Data to Watch for the Pound this Week

A new month means fresh data in the form of the trio of UK Purchasing Manager Surveys (PMI) for Manufacturing, Services and Construction.

These are the most timely economic data releases available and will give us a view of how the UK economy performed in April.

Both Manufacturing, on Tuesday at 9.30 GMT, and Construction, out on Wednesday at the same time, are forecast to fall by two basis points to 54.0 and 52.0 respectively.

Services, out on Thursday at 9.30, is expected to fall more steeply to 54.5 from 55.0 previously.

The recent downturn in UK economic activity means markets will be watching whether the trend continues with PMIs.

“Markets are looking for a bit of a pull-back in the PMI’s, and we’re just modestly more optimistic on balance,” said TD Securities in a review of the week ahead.

We doubt that disappointment will feed into any sustained pressure on Sterling though as the currency appears to be more concerned with global investor dynamics and domestic politics at present.

Data, Events to Watch for the Euro this Week

The final round of the French presidential election next Sunday will be a major influencer on the Euro which is likely to rise given the favourite by a large margin remains the moderate pro-European Emmanuelle Macron.

A Macron victory could well see further strength in the Euro as hedges against a Le Pen win are finally closed out.

Such insurance against a Le Pen win has however diminished significantly since the first round and we would expect any premium afforded to the Euro from this dynamic to be limited.

Apart from that, the main release for the region is Q1 GDP on Wednesday, May 3 at 10.00 GMT.

Some individual country GDPs has already been released ahead of the regional figures. Spanish growth accelerated a basis point in Q1 to 0.8% whilst French disappointed slightly by rising only 0.3%, although according to Barclays the bigger picture and outlook for France in Q2 is improving, with, “ongoing investment across sectors bolstering the recovery,” and “latest business surveys positively orientated across the board.”

German GDP has not been released but the strong German IFO sentiment survey makes Barclays confident general Eurozone growth will be robust at 0.4% in Q1.